Understanding how PayPal’s buy now, pay later works

What is buy now, pay later?

BNPL is a form of credit that allows shoppers to make purchases immediately and pay for them over time, typically in instalments. It’s often used for large or unexpected expenses.

When considering instalment plans, it’s important to understand what fees and charges are linked to different BNPL offers, for example account fees, late fees, interest charges, etc. You should also note that interest may be payable on interest-free BNPL products if you make repayments using a credit card.

In addition, note that BNPL providers often perform credit checks. A person’s credit score may influence their eligibility for credit and the terms and conditions of credit services.

How does buy now, pay later work generally?

So, what should someone know about buy now, pay later? While the process will vary depending on the provider, it generally involves:

1. Selecting BNPL: A person chooses BNPL as their payment option at a point of sale, if available.
2. Applying for BNPL: BNPL providers will require an application process, and some may require a credit check.
3. Approval and purchase: Once approved a customer can accept the offer of credit and make a purchase with it.
4. Making initial payment: An initial payment may be required at the time of purchase.
5. Scheduling future payments: The remaining balance is usually divided into scheduled payments which may be automatically deducted from a person’s chosen payment method, such as a bank account or a credit card.
6. Completing payments: Once all scheduled payments are made, the transaction is complete.

What factors can prevent someone from getting approved for buy now, pay later?

Not everyone may qualify for a BNPL plan, and it will depend on, among other things, the credit underwriting and risk policies of the BNPL or credit provider. Some credit-related information which BNPL providers may consider is:

• Credit score: Some providers may require a minimum credit score at the time of application.
• Income level: if income is verified as part of the application process, a minimum level of income may be required to demonstrate repayment capability.
• Payment history: Past performance in connection with BNPL loans may be considered by the credit providers who provided those loans.
• Existing debt: if expense information is requested as part of the application process, high levels of existing debt might affect an application.
• Age and residency: BNPL services may have minimum age requirements and/or require residency in specific regions or countries.

What are the potential benefits of using buy now, pay later?

Individuals may benefit from:

• Budget management: BNPL can be used for large purchases by allowing customers to stagger repayments over time thereby assisting with managing finances.
• Convenience: The application process is usually integrated into the point of sale experience.
• Accessibility: BNPL can be an option for those who may not have access to traditional credit.

What are the risks to consider before using Buy Now, Pay Later?

It’s essential to be aware of potential risks before using BNPL. Here are some common examples:

• Impact on credit score: one or multiple credit checks, and overdue BNPL plans may negatively affect a person’s credit score.
• Budget mismanagement: Multiple BNPL commitments could lead to debt accumulation.
• Fees and charges: Some plans impose fees and charges for BNPL plans and/or late payments.
• Impulse purchases: The ease of BNPL can encourage impulse buying, potentially leading to financial stress.

Using PayPal Pay in 4

PayPal buy now, pay later is available for eligible PayPal customers on qualifying purchases at checkout and may include Buyer Protection on eligible purchases. It allows shoppers to divide eligible purchases between $30 and $2000 into 4 interest-free instalments payable over 6 weeks. Learn more about what is buy now, pay later.